Updated: Jan 13
Our thoughts become our attitude, our attitude becomes our actions, our action turn into habits, and habits become the way we live our lives.
We all have read about how successful investors have effectively and successfully invested in properties. In this article, however, we have chosen to focus on the habits we should avoid. A dollar saved is a dollar earned.
Let us jump straight into the worst habits of failed property investors. Furthermore, what are the thoughts that lead to them?
1. Being too lazy to do the research
The ineffective investor focusses on his property that he liked and did not spend much time of research of the surrounding area. Experts suggest that it is necessary to see close to 100 properties before making a choice.
Looking at multiple properties will boost the chances of finding the best deal at the end.
A smart buyer before his first inspection will do his homework thoroughly and will focus on location. They access the vital information by getting advice from their lawyers, accountants, councils. The amount of money the investor spends on the due diligence before investing is the money well spent.
2. Failing to think strategically
The real estate lesson for investors is that, if they have capital, they need to work that capital as fast as possible. They must move money and follow the upward-trending areas. They need to manage their money by understanding various markets and where to buy next. Every investor should think strategically and understand the concept of property cycles.
What ineffective property investors tend to do is buy when the property at the peak of the growth period. They tend to buy when the market is 'thrilled' or 'euphoric'.
The best investors are more strategic and wait for getting into the market by timing when to enter, just as property prices are about to drop again. This way, they buy the property at a more discounted rate and get in the market just as the property starts growing back again.
"Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth." – Theodore Roosevelt, U.S. president
3. Not treating investing like a business
Every business has a vision board. The best investors treat their property portfolio as a business. When they start thinking about buying their own home or investing in properties, they should think long term and come up with their vision board. If they decide a goal, then its more comfortable to achieve it and they can always take a step by step approach to achieve it.
The property investor may or may not like the ugliest house, but if the numbers are stacking up, and the rental returns are best. Then why should they hesitate to acquire it? It should be treated as a business.
4. Buying in wrong locations
The ineffective investor, most of the time, goes for the looks of the property. The most important thing is the location. Investors should do their research of the location they are buying. They should study which area has industrial growth, rental yield variation, supply and demand ratio, infrastructure developments.
Having a property in the epicentre of a publicly listed company's developments means 5-10 years of housing supply could pop up almost overnight, for example.
5. Lacking creativity with Finances
Many people will buy a property based on a pre-approval, go unconditional on the property. Investors can muck up their finances, ironically, by shying away from debt.
"We do not have to be smarter than the rest. We have to be more disciplined than the rest." – Warren Buffett
Ineffective investors make the mistake of securing loans for several properties in the same bank. Right investors create their trust as they have long term vision for their portfolio. Purchasing based on pre-approval of a mortgage is a bad habit. The right approach is to use the pre-approval more as a gauge for what can buy.
6. Misjudging extra costs
Ineffective investors fail to budget for the cost of acquiring and holding the property. They will fail to account for their debt service ratio, how their lenders calculate serviceability of a loan.
The excellent investor always adds up the extra cost before finalizing the property like Insurances, renovations, strata fees, building and pest inspections; property agents cost.
7. Inaction (the worst habit)
The most dangerous habit of highly ineffective property investor is inaction. Investors sometimes wait too long to act on buying the right property. Investors who wait too long for a market to become just right are doomed to fail. There is always a danger that these investors will purchase only when a market is booming, which is often, the worst times to buy because the market has a high chance of peaking.
Investors who procrastinate - who put off their investing for fear of making a bad decision - also fail.
Investment in property is into the D N A of the Australian Investor, but not everyone is successful. The best way is to learn from successful and experienced investors and not to reinvent the wheel and copy their actions.
Should you be time-poor or do not know how to go about doing research, feel free to leverage independent buyers agents/consultants out there to help you through your journey.
Next steps: Should you want to learn how the author built his $5m balanced portfolio in 7 years, and aspire to own something similar, feel free to get in touch via email at email@example.com or book an appointment here.
Disclaimer: This article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a financial adviser.